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Caroline Baum: The Fed should put up or shut up on its inflation undershoot

MarketWatch photo illustration/iStockphoto, Bloomberg
Federal Reserve Gov. Lael Brainard

“Of course, it is not entirely clear how to move underlying trend inflation smoothly to our target on a sustained basis in the presence of a very flat Phillips curve.”

— Fed Gov. Lael Brainard, May 16, 2019

To think that central bankers have no idea how to create inflation is nothing short of stunning. Brainard seems to be saying that, short of a viable Phillips Curve relationship — a once-upon-a-time inverse correlation between unemployment and inflation — there is nothing we can do to hit our 2% inflation target. Really?

“It’s kind of scary when top Fed officials have forgotten that inflation is a monetary phenomenon,” said Scott Sumner, a senior research fellow at George Mason University’s Mercatus Center.

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